Greek Tax Plan Whacks Middle Class

A new tax scheme attached to a $17.45 billion spending cut and tax hike plan for 2013-14 aims squarely at the middle class despite Prime Minister Antonis Samaras’ promise to insulate it from harsh new austerity measures.

Samaras, the New Democracy Conservative leader, presented the plan to Eurozone finance ministers on Dec. 13 without consulting his coalition partner leaders, PASOK Socialist leader Evangelos Venizelos, and Fotis Kouvelis, leader of the Democratic Left. They had threatened to block the legislation because they said it came down too heavy on workers, pensioners and the poor while letting tax evaders continue to escape.

Annual incomes up to 25,000 euros ($32,675) for salaried workers would be taxed at 21 per cent, with the next 15,000 taxed at 36 per cent. Incomes over 40,000 euros ($52,250) would be taxed at 40 per cent.

The law would also streamline tax arrangements for inheritances and transfers of capital. Self-employed workers would pay tax of 26 per cent on incomes up to 50,000 euros ($65,313) and 32 per cent above that level. Samaras earlier nixed plans for a 45 percent tax rate on those with incomes of more than 50,000 euros, saying he was a protector of the working class.

Greece’s international lenders, the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) said tax reforms are critical to increasing budget revenues by at least 1.3 billion euros ($1.69 billion) annually and curbing evasion by doctors, lawyers and entertainers, considered among the worst offenders. About 30 billion euros ($39.2 billion) annually of tax revenues go uncollected, according to the Greek financial police.

The draft law proposes a simplified system abolishing most tax credits and setting up a three-tier system for personal taxation but hits hard at the middle class, a sector Samaras said he would protect but which will bear the brunt again.

The Troika has agreed with the changes in principle but said it wants tougher collection of overdue taxes, along with a renewed commitment by the government to pass a second law overhauling the tax administration by mid-2013.